On May 1, 2006, the Supreme Court used an opportunity presented by the Anna Nicole Smith bankruptcy case to resolve some confusion among federal courts about the probate exception to federal court jurisdiction. In Marshall v. Marshall, 126 S. Ct. 1735 (2006), the Court clarified and reaffirmed its sixty-year old holding in Markham v. Allen, 326 U.S. 490 (1946) that limited the cases categorically barred from federal courts under this exception to those that interfered with a state court’s possession of probate property. Marshall’s interpretation of the exception overturned the Ninth Circuit’s opinion, which held that not only were direct challenges to wills and trusts excluded, but so were claims involving questions routinely decided by probate courts in determining the validity of an estate planning instrument.

The claim at issue is part of Smith’s protracted legal battle over her deceased husband’s estate. Smith’s late husband, billionaire J. Howard Marshall (J. Howard), died in 1995 without providing for her in his will. While J. Howard’s recently deceased son, E. Pierce Marshall (Pierce), was the ultimate beneficiary of his father’s estate, it has been Smith’s contention that J. Howard intended to provide her with a "catch-all" trust upon his death. The fight over J. Howard’s estate led to proceedings in a Texas probate court. While that case was unfolding, Smith filed for bankruptcy under Chapter 11 of the Bankruptcy Code. Pierce filed a proof of claim against Smith for defamation for statements made by Smith’s attorneys to the media to the effect that Pierce had engaged in unsavory tactics to gain control of his father’s estate.  Smith filed a counterclaim for tortious interference with an expected inheritance and the Bankruptcy Court ruled in her favor, granting her compensatory and punitive damages of roughly $474 million. Pierce then filed a post-trial motion to dismiss for lack of subject-matter jurisdiction, claiming that because of the probate exception, Smith’s counterclaim could only be tried in the Texas probate proceedings. The Bankruptcy Court denied the motion, holding that the probate exception was not timely raised, and was thus waived. Pierce sought review of the Bankruptcy Court decision, and found vindication in a Ninth Circuit opinion that held that any claim raising questions ordinarily decided by probate courts in determining the validity of a testamentary instrument was excluded from federal court jurisdiction. The court further claimed that state court deference to probate courts on probate-related matters should control federal subject matter jurisdiction, and because the Texas Probate Court had decided it had exclusive jurisdiction over all of Smith’s claims, that ruling was binding on the federal court.

The Supreme Court reversed, and in doing so proclaimed the probate exception to be a narrow one.  The Court noted that, like its cousin, the domestic relations exception, the probate exception is not carved out in the U.S. Constitution or explicated in any federal statute. Both exceptions are based primarily on "misty understandings of English legal history," and perhaps as a result of their uncertain origins, both have been the subject of increasingly expanding interpretations. The Court recognized that its own decision in Markham may have caused some of the confusion, and it attempted to clarify what was meant by its assertion that federal courts may entertain suits involving a decedent’s estate as long as they do not "interfere" with probate proceedings. The Court looked to more specific language in the opinion, which claimed that federal courts can exercise jurisdiction over probate matters as long as such jurisdiction does not interfere with the state court’s possession of probate property. With such a limited definition of the probate exception, the Court noted that this case easily falls outside of its scope. Smith’s claim was based on a widely recognized tort that did not involve any purely probate matter and which did not attempt to interfere with property in the state court’s possession. The Court also noted that it could find no policy reason for extending the exception to Smith’s case, since state courts have no special proficiency in adjudicating tortious interference cases. The Court similarly dismissed the Ninth Circuit’s contention that federal jurisdiction was barred because the Texas Probate Court had claimed exclusive jurisdiction over Smith’s claims. The Court held that federal courts cannot be denied jurisdiction based on a state court’s grant of exclusive jurisdiction to probate courts. 

Written by: Cynthia Tollett